Supermarket Shakeup Could Lead to Higher Prices

July has seen a lot of movement in the food and beverage distribution industry. Cincinnati based Kroger, the largest traditional grocery chain in the US and fifth largest retail chain in the world, purchased Harris Teeter, the 93rd largest US grocery chain with a strong presence in the Southeastern US.

By revenue, the second largest publicly traded wholesale food distributor is Minneapolis-based Nash Finch, which will merge with Spartan Stores Inc., a Michigan-based food and grocery distributor that distributes products to over 400 independent grocery chains in Michigan, Indiana, and Ohio. This will impact the grocery distribution industry throughout 37 states, from Georgia to Montana.

With the grocery and distribution industry growing more consolidated, the expectation is that these larger retailers will be able to combine resources and to lower prices. However, research by the Food & Water Watch Organization “…found that retailer mergers increased grocery prices by as much as 7 percent, but breaking up big grocery store chains could reduce retail prices by 2 to 4 percent.” This seems to be the case with Kroger announcing that the “pricier” Harris Teeter supermarkets will not see many, if any, changes even though Kroger will assume Harris Teeter’s outstanding debt for nearly $100 million.

In addition, food manufacturers and distributors are growing more dependent on large supermarket chains that control the significant majority of the market share. These retailers have more leverage on the manufactures, lowering costs but failing to pass them down. Reports indicate “The commodity price index and agricultural raw material price index are moving upward, which indicate a continued climb in food prices. The cost of fuel and labor is shooting up along with input costs of manufacturing, which will have a huge impact on the costs of transport, storage and distribution.” It is crucial for the distribution industry and small-to-medium sized grocery markets to develop innovative solutions to respond to market changes. We can get you started with some tips for simplifying stocking and purchasing procedures, along with a variety of cost-effective software solutions. Contact us on our homepage and follow us on both Twitter and Facebook.

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